ERISA-Sixth Circuit Holds That Retiree Health Benefits Are Vested, And Cannot Be Changed By The Employer, Despite A Reservation Of Rights Clause In The Summary Plan Description

In Moore v. Menasha Corporation, Nos.10-2171/2173 (6th Cir. 2012) (see yesterday’s blog), the Sixth Circuit Court of Appeals (the “Court”) ruled that the retiree health coverage provided through two collective bargaining agreements (“CBAs”) was vested and could not be unilaterally changed by the employer, Menasha Corporation (“Menasha”). This obtained, even though the summary plan description (“SPD”) describing the coverage had a reservation of rights clause (an “ROR “), and an ROR normally prevents vesting. What happened?

According to the Court, the ROR stated:

“The Company reserves the right to terminate the Plan at any time and for any reason. If the Plan is amended or terminated you and other active and retired employees may not receive benefits as described in other sections of this [SPD]. You may be entitled to receive different benefits under different conditions. However, it is possible that you will lose all benefit coverage. This may happen at any time, even after you retire, if the Company decides to terminate the Plan or your coverage under the Plan. In no event will you become entitled to any vested rights under this Plan.”

The Court said that the Sixth Circuit has previously held that an ROR in an SPD may reserve an employer’s right to unilaterally alter or terminate benefit coverage–even if (as here) the SPD was distributed after the CBA providing the coverage. However, the ROR must be interpreted in the same manner as any other extrinsic evidence; namely, the ROR cannot internally contradict other provisions of the SPD, nor can it contradict the terms of the CBA itself. If the SPD otherwise indicates that it is “subject to the provisions of the CBA,” the SPD is deemed “unqualified” and cannot trump the parties’ collectively bargained agreement. Likewise, if the CBA states that it is the fully integrated commitment of the parties or that it cannot be amended without signed mutual consent, the ROR will not trump the CBA. Only where the SPD states “an unqualified assertion of a unilateral right to end retiree medical insurance benefits without regard for existing or future CBAs,” would the Court allow a later-issued SPD to trump the terms of a bargained-for CBA.

The Court concluded that the ROR in this case does not meet the foregoing standard. Here, the CBAs provide that “[t]his Agreement may be amended at any time by mutual agreement of the parties hereto.” The Court stated that, because the parties agreed on the procedure to be used in amending their agreement, it would read that provision out of the contract to allow Menasha to unilaterally modify the terms by an alternate avenue, such as by using an ROR in the SPD. Moreover, allowing the ROR to trump the bargained-for procedure would vitiate a negotiated benefit of the contract. Thus, the ROR could not be applied to change or eliminate the retiree health coverage at issue.

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